The BizFilings blog covering business tips and trends.
The benefits of delayed filing or delayed effective date incorporation
Dec 10, 2009, 07:49 AM
Read 'The benefits of delayed filing or delayed effective date incorporation' at 'Time to Start Up,' the small business blog by BizFilings.
First off, you might be wondering what exactly a delayed filing, often called a delayed effective date incorporation, is.
Some states allow you to choose a specific date, anywhere from 30 to 90 days in the future, for when you would like your business to officially be formed; regardless of when you actually submit the paperwork to create it.
The normal process to create a corporation or LLC is to submit the state required paperwork and fees to the proper department within your chosen state. The amount of time it takes any given state to process these documents can vary from a matter of days to several weeks depending on the level of service you request. If you expedite your filing, you can typically ball-park the time to about 5 – 10 business days. If everything is approved, your new company is “official” with the state right away.
So for example, you file all your paperwork on the 1st of the month, your company will be established and subject to state and federal taxes, requirements, etc. on about the 10th of that month.
With a delayed filing, you can typically tell the state what day you would like your new company to be officially recognized. So keeping with the examples, you can submit your paperwork on the 1st of June, and request that your company be “effective” three months later, specifically on September 22nd.
Now, back to when this might be useful.
To be honest, there’s not a whole lot of advantage to doing this in the middle of the year unless there’s a specific meaning behind the date. Let’s say you’re forming a non-profit organization dedicated to cancer research. You may want to form the company to commemorate the date someone close to you found out they were cancer free, or maybe in October during national breast cancer awareness month. Essentially, if there is a significant reason for picking a date, you can do so.
Another reason for middle of the year delayed filing is simply personal convenience. Often when you form a company, there are several other requirements that are usually due within the first month of existence – business licenses, initial lists, etc. If you’re not able to attend to these requirements due to a vacation, a family event, or for whatever reason, you can delay your filing to a time when you’re more available.
You really gain advantages though, if you file at the end of the calendar year and select an effective date in the upcoming year. (i.e. file in late 2009 and ask for an effective date in January 2010)
By doing this you can avoid:
Paying state franchise taxes for the current calendar year.
Filing an Annual Report in your state of incorporation or undertaking other corporate formalities for the current calendar year.
The backlog states typically encounter at the beginning of the new year.
Generally speaking, you could save yourself a couple hundred dollars if you are thinking of forming a company in November or December, simply by delaying the effective date until the next calendar year.
Again, this isn’t an option in every state, but it’s worth looking into to find out if you could benefit from a delayed filing.